The Digital Dawn in Banking

The financial services industry is trying to embrace digital transformation. Some of the major customer-facing institutions have adopted digital as a means of communicating and interacting with customers, but internal processes are still mired in the past.

Almost every business today is going through a process of digital transformation. Companies are investing in digital marketing and the technology that enables them to engage customers and manage internal processes as effectively as possible.

Digital transformation is about deploying technology specifically to realize strategic business objectives. Which is why a wider swathe of the financial services sector is now beginning to perceive the potential of digital to integrate and streamline the entire business process, from end to end, from the mechanics of management to the delivery of products and services that attract and retain the customers on whom the whole enterprise depends.

For many in the industry, however, that remains a perception that yet needs to be transformed into reality. Econsultancy’s research findings on priority areas for technology investment in the financial services and insurance sector illustrate this divergence.

While most financial services organizations use technology widely to encourage customer interaction through channels such as online banking and apps, few have yet invested in complete, end-to-end digital systems and processes. At the same time, these businesses know that, if they are to keep pace, they must continuously innovate to improve process efficiency, cut costs and encourage internal fluidity by adopting advanced technology and frameworks.

The Voice of Experience

Rob Mettler

In an exclusive interview with Rob Mettler, Digital Business Expert at U.K.-based PA Consulting Group, he said, ‘Many sectors of business have had a clear imperative to change. Media, retail and travel have each experienced extreme disruption and it’s significant how those that haven’t transformed have tended to become obsolete or irrelevant.”

He continued, “The financial services industry hasn’t yet experienced that level of disruption. Yes, it’s had to adapt to meet customer demand and changes in behavior but, largely, inertia has been its friend.”

When asked about the future of digital transformation in the banking industry, Mettler said, ‘The regulators are encouraging new entrants and those like Atom Bank have quickly responded. Competition is already chipping around the edges with crowdsourced funding platforms like Kickstarter and Indiegogo on one side and alternative payment providers like PayPaland Stripe on the other.”

PA Consulting has observed similar levels of ambition for digital transformation. Rob Mettler reports that 68 per cent of respondents to PA Consulting’s Digital Barometer want to create a new type of business through digital.

“When we drill down on financial services, we see a similar level of digital ambition,” he says. “But, that type of shift demands changes across the enterprise to succeed in delivering the potential digital value – culture, leadership and governance, as well as the more tangible areas like IT, data and processes. The next step is to drive that transformation of services and operations through to delivery – easier said than done in any business, let alone one with a spaghetti bowl of interfaces, data and in a unique regulatory landscape.”

The Challenge of ‘Legacy’

“Companies that have embraced digital transformation are 26% more profitable than their average industry competitors and enjoy a 12% higher market valuation.”
— MIT Center for Digital Business

Having reviewed the foregoing, it may seem perverse that many financial organizations are actually still operating with manual processes or legacy systems. For example, there are organizations in the financial services sector that had been running marketing production operations entirely with a paper-based system until a year ago.

Particularly in the case of financial services, the idea of wholesale and sudden digital transformation can be daunting and limiting to the potential for change. But it has been proven that successful digital transformation can begin with small incremental change at the core of the business.

This is borne out by Rob Mettler’s experience at PA Consulting. “For many sectors, including financial services, transformation is unlikely to be prompted simply by a leap of faith. It needs buy-in at executive level and a compelling evidence base to support the decision-making process. And that evidence will demand results of a number of previous successful projects, pilots and experiments that have been executed bottom-up, bringing with them stakeholder advocacy and tangible outcomes to build confidence with the executive.”

The Importance of Getting the Board on Board

Of course, any type of digital transformation requires a high level of investment, capital and time to address the issues, tie in strategically to wider IT planning, find the right technology and manage the risk and regulatory considerations. It’s also true that many seniors in the financial services industry may not yet have fully appreciated the scale of digitalization as a core strategic issue. In which case, the first step is to change is the mindset of the board.

In our exclusive interview, Rob Mettler shared, “The important thing is having leaders in place who can recognize the potential and stick out their necks to commit to a more transformative journey. But bear in mind that, given that only 29% of our Digital Barometer respondents agree their leadership understands digital, nothing can be taken for granted.”

“What is quite clear after more than 20 years of working in digital is that, although you might not need to start at the top, if you don’t get executive commitment at some point in your digital journey, it will be impossible to commit to the transformation required not just to survive, but to thrive in the digital age,” Mettler warned.

Where Do We Start?

When working with clients in the financial services industry, we ask them to draw a picture of how they want to leverage the power of our particular technology for the organization, then start the planning from there – from vision to action plan.

The key elements of a successful digital transformation are:

An innovative mind-set from the board directors

A collaborative environment

Strategic partnership with technology vendors

Long-term vision and short-term execution ability

And the components of the action plan are:

Identify the issues that hamper your efficiency

Build a list of digital solutions that could help solve your problems

Determine what you are looking for in a system; create a cost-benefit analysis to ensure the chosen technologies will add value to business outcomes

Design an implementation plan and think about how that solution will fit with your company’s processes

Create an authentication and monitoring mechanism to achieve the required level of security for access to digital channels

Throughout the process, always keep a ‘test-and-learn’ attitude with everyone involved

Jens Lundgaard is the founder and CEO of Brandworkz andis a leading expert on brand management. Jens has been developing brand and digital asset management technology since the nineties for companies like Red Bull Racing, Silicon Valley Bank, Pfizer, Gold’s Gym and Ally Financial.

In his early career, while working at a number of branding agencies, Jens observed that that many brand launches and re-brands would lose strength and vitality over a one to two year period following their launch because brand managers didn’t have the tools for efficient brand management. Equally, designers would often see the impact of their work diluted once handed over to the client, because the branding and messaging were used inconsistently or didn’t follow brand guidelines. Because of these deficiencies, Jens founded Brandworkz and it has grown into the cloud-based, global brand management technology system it is today. You can follow Brandworkz on Twitter by clicking here.

Comments

The digital age is quickly transforming the global financial landscape. Many large financial institutions resisted the inevitable change, but now have started to look towards investing in that very wave of new fintech that will supplant them. Looking at the evolution of banking, it really makes sense that the protection of capital would move towards digital representations, as the physical technology was mainly to prevent fraud in the first place. Switching the technology to blockchain based solutions would dramatically improve the ability for financial institutions to prevent fraud, and a combination of physical and digital is the most likely outcome.

There are already start-ups like Amilabs Ltd. out of Thailand that have looked to combine digital tokens with physical reserves of commodities that are stored in decentralized vaults. This new model of decentralized reserve backed tokens will make capital much less driven by political influence and much closer to actual free market movement of capital.